FOLLOW UP: Tax Incentives for 2011

Since our post last week, Tax implication clock is ticking for farmers, we've received a lot of tax code questions. Below is an example how growers can save significant money on their tax bill.

As a reminder, The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 contains tax savings specific to the purchase of equipment that are set to be dramatically reduced at the end of the year:

• Through December 31, 2011, for new equipment purchases, 100% of the cost can be written off. This is actually 100% bonus deprecation and it is not capped or limited. In 2012, the program returns to 50% bonus depreciation.
• For used equipment, the section 179 (one time write off provisions) limits are $500,000, with phase out beginning at $2,000,000.

Example for New Equipment:

Cost of Equipment	$500,000
100% bonus depreciation (new only)	$500,000
Section 179 Deduction (new or used)
Normal 1st year depreciation
Total 1st year depreciation	$500,000
Cash savings on your equipment purchase (assumes 35% tax rate)	$175,000
Lowered cost of equipment after tax savings	$325,000

Example for Used Equipment:

Cost of Equipment	$500,000
100% Bonus Depreciation (new only)
Section 179 Deduction (new or used)	$500,000
Normal 1st year depreciation
Total 1st year depreciation	$500,000
Cash savings on your equipment purchase (assumes 35% tax rate)	$175,000
Lowered cost of equipment after tax savings	$325,000

So, on a $500,000 purchase, our government is essentially handing you back $175,000 in year 1, instead of spreading that amount over the depreciable life of the sprayer.